Empire State Entrepreneurship: Guide to Starting a Business in New York

Key Takeaways for Starting a business in New York:

  1. New York State is mixed for being business-friendly, offering advantages and opportunities in the market alongside cost and regulatory challenges.
  2. Advantages include access to diverse markets, robust infrastructure, industry diversity, and a talented workforce.
  3. Challenges include high costs, complex regulations, competitiveness, and bureaucratic hurdles.
  4. New York State’s progressive corporate income tax rate ranges from 6.5% to 11% for income over $10 million.  Few states are higher, such as California’s rate of 8.84%, or New Jersey and Iowa exceeding 9%.  New York City also has an income tax, as does Yonkers, which adds to the tax burden.

Is New York A Business-Friendly State?

New York State has a mixed reputation when it comes to being business friendly. While it offers numerous advantages and opportunities, it also presents some challenges. Here’s an overview of key factors:

What are the advantages to doing business in New York?

1. Access to Markets: New York State boasts a large and diverse consumer market, including the bustling metropolitan area of New York City. This provides significant opportunities for businesses to reach a wide customer base. This also includes capital markets.

2. Infrastructure: The state offers robust infrastructure, including transportation networks, advanced technology, and access to international airports and seaports. This can benefit businesses involved in logistics, import/export, and distribution, but also an international talent and finance base.

3. Industry Diversity: New York State is home to various industries, including finance, technology, media, tourism, healthcare, and more. This diversity allows for cross-industry collaboration and potential business partnerships.

4. Talent Pool: The state hosts prestigious universities, research institutions, and a highly skilled workforce. It provides access to a talented pool of professionals across different sectors, which can benefit businesses seeking skilled employees.

What are the challenges to doing business in New York?

1. High Costs: New York has a relatively high cost of living and doing business, especially in New York City. Taxes, regulations, and real estate expenses can be significant, impacting the profitability and operational costs of businesses.

2. Regulations: The state has a reputation for having complex and stringent regulations across various industries. Compliance with these regulations can be time-consuming and costly for businesses, particularly small businesses.

3. Competitiveness: New York State’s business environment is highly competitive, especially in industries like finance, technology, and professional services. New businesses may face intense competition and need to differentiate themselves to succeed.

4. Bureaucracy: Businesses have challenges navigating government bureaucracy and obtaining necessary permits and licenses. This bureaucratic process can slow down business operations and hinder growth.

Many businesses put up with the red tape, high cost and high taxation rate, in addition to New York City tax, because the overall market is so lucrative, and the opportunity is so great.

How do I start a business in New York State?

Starting a business in New York State involves several key steps. Here’s a concise guide to get you started:

  • Choose a Business Structure: Select the legal structure for your business, such as a sole proprietorship, partnership, corporation, or limited liability company (LLC). Consult with a tax professional to determine the best fit for your needs.
  • Register Your Business: Register your business with the New York Department of State. For most businesses, this involves filing the necessary forms and paying the required fees. If you’re establishing a corporation or LLC, you’ll need to file the appropriate formation documents.
  • Obtain Licenses and Permits: Determine if your business requires any specific licenses or permits to operate legally in New York State. Use the New York Business Express website to identify the licenses and permits you may need.
  • Federal and State Tax Obligations: Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) if you plan to hire employees or have a business structure that requires it. Register for applicable federal and state taxes, such as income tax, sales tax, and employment taxes.
  • Open Business Bank Accounts: Set up separate bank accounts for your business to maintain clear financial records and separate personal and business finances.  This will help with your tax records.
  • Business Compliance: Stay informed about ongoing compliance obligations, such as filing annual reports, renewing licenses, and meeting tax deadlines. Keep accurate financial records.

Specific requirements for starting a business in New York State may vary depending on your corporate structure, industry and circumstances.

Does New York have a corporate income tax?

Yes, New York State imposes a corporate income tax on businesses operating within its jurisdiction. The corporate income tax is separate from the personal income tax and is levied on the taxable income of corporations and other entities treated as corporations for tax purposes.

The corporate income tax rate in New York State is progressive and varies depending on the level of taxable income. The tax rates for corporations ranged from 6.5% to 9% for taxable income over $2 million.

In addition to the state corporate income tax, businesses operating within New York City are subject to the New York City corporate income tax, which is imposed on top of the state tax. The New York City corporate tax rates also vary depending on the level of taxable income and range from 6.5% to 11.5% for taxable income over $10 million.

It’s advisable to consult the New York State Department of Taxation and Finance for the most up-to-date and accurate information regarding corporate income tax in New York State.

Does New York have a franchise tax?

Yes, New York State imposes a franchise tax on certain businesses operating within its jurisdiction. The franchise tax is separate from the corporate income tax and is levied on entities that are treated as corporations for tax purposes, including C corporations and S corporations.

The New York State franchise tax is a complex tax that has different components based on a business’s classification and level of activity. The two main components are the “fixed dollar minimum” and the “business income base” tax.

  • Fixed Dollar Minimum: This component applies to most domestic and foreign corporations with New York activities, regardless of their level of income. The tax is calculated based on a fixed amount determined by the entity’s New York receipts. The fixed dollar minimum tax amount varies depending on the entity’s classification and New York receipts.
  • Business Income Base: This component applies to corporations meeting certain income thresholds. It is calculated based on the corporation’s New York business income, which is derived from its apportioned net income or capital base. The tax rates for the business income base vary depending on the level of taxable income.

It’s important to note that the specific calculation methods and tax rates for the franchise tax can be complex and depend on factors such as the entity’s classification, level of income, and New York activities. Additionally, New York City also imposes its own franchise tax on businesses operating within the city.

Does having a mailing address in New York state trigger corporate income tax and/or registration requirements?

Having a mailing address in New York State alone does not automatically trigger corporate income tax or registration requirements. The tax and registration obligations of a business in New York State are determined by several factors, including the type of business entity, the nature of its activities, and its nexus or connection to the state.

To determine tax and registration requirements, New York State considers factors such as physical presence, economic activity, employees, property, and sales within the state. Simply having a mailing address in New York State may not be sufficient to establish nexus or trigger tax obligations.

However, it’s important to note that conducting significant business activities or having a substantial presence in New York State may create tax and registration obligations, even if the business does not have a physical office or location within the state. Examples of activities that may trigger tax obligations include having employees working in New York, generating substantial revenue from sales to New York customers, or maintaining significant business assets in the state.

If I have my business in New York state but live in a different state, will I pay tax?

If your business is in New York State but you reside in a different state, your tax obligations will depend on the specific circumstances and the tax laws of both New York State and your state of residence. Generally, the following factors are considered to determine your tax liability:

1. Nexus: Nexus refers to the extent of your business’s connection or presence in a particular state. If your business has a physical presence, employees, or significant economic activity in New York State, it may establish nexus and potentially be subject to New York State taxes.

2. Apportionment: If your business operates in multiple states, the income generated may be apportioned or allocated based on a formula that considers factors like sales, property, and payroll. This apportionment determines how much of your business’s income is attributed to New York State and may impact your tax liability.

3. State Tax Laws: Each state has its own tax laws and regulations regarding out-of-state businesses. Some states, including New York, have specific rules for businesses located outside the state but conducting business within its borders. Understanding these laws and regulations is crucial in determining your tax obligations.

To ensure accurate and up-to-date information regarding your specific situation, it is advisable to consult with a qualified tax advisor who can provide personalized guidance based on the nature of your business, your residency, and any applicable tax treaties between the two states.

If all my activities are outside the US and I live in a different country, but have a company in New York state, do I have to pay New York State income tax?

If your company is in New York State but conducts all its activities outside the United States, and you, as the owner, reside in a different country, you may not have to pay taxes in New York State on the income derived from those foreign activities. However, it’s important to consider the following factors:

1. Nexus: Even if your company’s activities are primarily outside the US, it’s possible that engaging in certain types of activities or having a physical presence in New York State could create a nexus, or connection, to the state for tax purposes. Nexus rules vary by jurisdiction, and it’s essential to understand New York State’s specific requirements to determine if your company meets the criteria for taxation.

2. Permanent Establishment: If your company has a permanent establishment, also known as a fixed place of business, in New York State, it may be subject to tax obligations in the state. A permanent establishment could include a physical office, a branch, or other significant presence within the state.

3. Entity Classification: The tax treatment of your company will depend on its legal structure. For example, if your company is structured as a corporation, it may be subject to New York State corporate income tax. If it is a pass-through entity, such as a partnership or an LLC, the tax liability may flow through to the individual owners or members.

4. Tax Treaties: Consider whether there is a tax treaty between your country of residence and the United States, particularly with respect to double taxation avoidance. Tax treaties may provide relief or exemptions from certain taxes and help determine the tax liability in each jurisdiction.

Does having an employee in New York state trigger corporate income tax?

Having an employee in New York State may trigger corporate income tax obligations depending on the specific activities and nature of the work. Here are some general considerations:

  • Nexus: The presence of an employee in New York State can create nexus, or a connection, between a business and the state for tax purposes. If a business has nexus in New York, it may be subject to various taxes, including corporate income tax.
  • Physical Presence: The physical presence of an employee in New York State, such as working at a location within the state, can establish nexus. This is particularly relevant for businesses with a fixed place of business or permanent establishment in the state.
  • Economic Nexus: In some cases, economic activity within the state, including having an employee conducting business activities or generating revenue in New York State, can also trigger nexus and corporate income tax obligations. For example, a salesperson in New York would trigger Nexus, but a tech support person working remotely will not.
  • Withholding Obligations: If an employee is based in New York State, the business may have to withhold and remit certain taxes on behalf of the employee, such as state income tax and payroll taxes.

Does New York state tax SaaS income?

New York State generally taxes software-as-a-service (SaaS) income. SaaS income is typically treated as taxable revenue, subject to New York State corporate income tax or individual income tax, depending on the entity type and structure.

For businesses operating as corporations (C corporations), SaaS income is generally considered taxable revenue and subject to New York State corporate income tax. The income is apportioned based on the business’s New York State sales, property, and payroll.

Does New York state tax remote software sales as income?

New York State generally considers remote software sales as taxable income. When a business sells software remotely to customers in New York State, it is typically subject to New York State sales tax and may also be subject to New York State corporate income tax, depending on the entity type and structure.

Sales Tax: New York State imposes sales tax on the sale of certain digital products, including software. If your business sells software remotely to customers in New York State and meets the criteria for sales tax nexus, you may be required to collect and remit sales tax on those transactions.

Corporate Income Tax or Individual Income Tax: Depending on the business structure, remote software sales can also be subject to New York State corporate income tax (for C corporations) or individual income tax (for pass-through entities such as partnerships, LLCs, and sole proprietorships). The income from remote software sales would typically be apportioned based on the business’s New York State sales, property, and payroll, or passed through to individual owners or members for reporting on their individual tax returns.

For businesses operating as pass-through entities, such as partnerships or limited liability companies (LLCs), the SaaS income is typically passed through to the individual owners or members. Each owner or member reports their share of the income on their individual tax returns and pays New York State income tax accordingly.

When is my corporate income tax return due for New York state?

The due date for corporate income tax returns in New York State depends on the filing status and the type of business entity. Here are the general due dates:

  • Calendar Year Filers:
  • For C corporations: The corporate income tax return (Form CT-3) is generally due on the 15th day of the fourth month following the close of the tax year. Therefore, for calendar year filers, the due date is typically April 15th.
  • For S corporations: New York State does not require S corporations to file a separate state-level income tax return. Instead, the S corporation’s income and other related information are reported on the individual income tax returns of the shareholders.
  • Fiscal Year Filers:
  • For C corporations: If your corporation operates on a fiscal year basis, the due date for the corporate income tax return is generally the 15th day of the fourth month following the end of the fiscal year.

How do I close my business in New York state?

First, you must cease doing business, as plain as it sounds.  You do not want to have any income coming in after dissolution, or that will trigger additional tax filings and headaches.  New York state will not allow you to formally dissolve until all previous taxes are paid and settled.

To properly close your business in New York State, there are several important steps you should take. Here’s a general guide:

  1. Dissolve Your Business Entity: If your business is structured as a corporation, limited liability company (LLC), or other formal entity, you will need to formally dissolve it. Consult the New York State Department of State’s Division of Corporations for specific dissolution requirements and filing procedures.  You will also need a corporate resolution to dissolve, which must be voted in.  IRS Form 966 should be filed within 30 days of the resolution date.
  2. File Final Tax Returns: You will need to file final tax returns with the IRS for the year you dissolve, and file the final New York State corporate income tax return (Form CT-3).  Be sure to check the box on the tax return that it is your final return.
  3. Pay Any Outstanding Taxes: Settle any outstanding tax liabilities, including any remaining tax payments, penalties, or interest owed to the New York State Department of Taxation and Finance.
  4. Notify Other Government Agencies: Inform other government agencies of your business closure as necessary. This may include canceling any necessary permits, licenses, or registrations with local, state, and federal agencies. Examples of agencies to notify may include the New York State Department of Labor, the Department of Environmental Conservation, or any industry-specific agencies.
  5. Close Business Bank Accounts: Close any business bank accounts associated with your company and ensure that all outstanding financial matters are properly settled.
  6. Notify Employees and Settle Employment Matters: If you have employees, inform them of the business closure and address any outstanding employment matters, such as final paychecks, benefits, and tax-related documentation (e.g., W-2 forms).
  7. Notify Creditors and Settle Debts: Notify your business creditors of the closure and settle any outstanding debts or obligations.
  8. Maintain Business Records: Retain important business records, financial statements, and other relevant documentation as required by specific retention periods.

Can Cleer help me with my corporate income tax?

YES!  Every Cleer Corporate Income Tax Package includes BOTH Federal and State income tax filings.  If you do business in more than one State, each additional state is only $175 each.

Cleer provides accurate, affordable, and efficient financial and tax services for U.S. businesses and subsidiaries to help entrepreneurs do it right from the start. We also offer all-in-one monthly accounting packages that include monthly statements as well as your federal and state tax returns. If you have any other questions about forming your company or how to maximize your tax savings, book a consultation to discuss the best structure for your startup business, regardless of which state you register in. We also provide a new company package that includes a tax consultation, bookkeeping, and a chart of accounts set up to help you do it right from the start.

Author Bio
David McKeegan
David McKeegan, the founder of Cleer.Tax is both an MBA and Enrolled Agent. As an entrepreneur and small business owner himself, he really understands the pain points that company owners and founders have in regards to tax compliance and having clean financial statements. What really differentiates David is his ability to distill complicated tax matters into layman’s terms, making the advice actionable and accessible to all.
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